AN INTRODUCTION TO FAMILY LAW
Chapter 11 - TAXATION
Income Tax
Married Couple's Allowance is available to married couples or civil partners who are living together where at least one spouse or partner was born before 6th April 1935.[1]
Otherwise, married couples and civil partners are taxed separately on their income, and each has their own personal allowance.
There is no longer any tax relief for maintenance payments: the payer pays the maintenance from their net income.
[1] For further information on Married Couple's Allowance see
HM Revenue and Customs website .
Inheritance Tax
A transfer of value from one spouse to the other during the marriage is exempt from inheritance tax.[1]
Transfers made after decree absolute will normally escape inheritance tax by falling under one of two provisions:
(1) Dispositions not intended to confer gratuitous benefit: A disposition is not a transfer of value if it is shown that it was not indented, and was not made in a transaction intended, to confer any gratuitous benefit on any person and either—
(a) that it was made in a transaction at arm's length between persons not connected with each other, or
(b) that it was such as might be expected to be made in a transaction at arm's length between persons not connected with each other.[2]
Divorced spouses are no longer connected persons [3] and transfers between them pursuant to an order following divorce will generally be regarded as transactions at arm's length and not intended to confer any gratuitous benefit.[4]
(2) Dispositions for maintenance of family: A disposition is not a transfer of value if it is made by one party to a marriage in favour of the other party or of a child of either party and is—
(a) for the maintenance of the other party, or
(b) for the maintenance, education or training of the child for a period ending not later than the year in which he attains the age of eighteen or, after attaining that age, ceases to undergo full-time education or training.[5]
“Marriage”, in relation to a disposition made on the occasion of the dissolution or annulment of a marriage, and in relation to a disposition varying a disposition so made, includes a former marriage.[6]
[1] Inheritance Tax Act 1984, s.18(1) .
[2] Ibid, s.10(1) .
[3] Ibid, s.270 and Taxation of Chargeable Gains Act 1992, s.286 .
[4] See Statement issued by the Senior Registrar of the Family Division with the agreement of the Revenue (1975) SJ 596.
[5] Inheritance Tax Act 1094, s.11(1) .
[6]
Ibid, s.11(6) .
Capital Gains Tax
Where the husband and wife are living together any disposal of an asset from one party to the other will be treated as if the asset was acquired from the one making the disposal for a consideration of such amount as would secure that on the disposal neither a gain nor a loss would accrue to the one making the disposal.[1] Accordingly, no CGT will arise on that disposal. However, this rule will cease to apply at the end of the tax year in which the parties separate and therefore any transfer of an asset from one spouse to the other after the end of that tax year can give rise to CGT.
Principal private residence relief
A gain accruing to an individual attributable to the disposal of, or of an interest in, a dwelling-house or part of a dwelling-house which is, or has at any time in his period of ownership been, his only or main residence will be wholly or partially exempt from CGT. This relief continues to apply for three years after the individual has left the house.[2] Further, if the disposal is from one spouse to the other pursuant to a financial settlement on divorce or separation and the other spouse continues to occupy the house as their principal residence (and the transferring spouse has not elected to treat any other property as their principal residence) then the transferring spouse is deemed to occupy the house until the date of the transfer.[3]
[1] Taxation of Chargeable Gains Act 1992, s.58(1) .
[2] Ibid, ss.222 & 223 .
[3] Extra-statutory concession D6.
Stamp Duty
Stamp duty is not chargeable on a transfer of property from one party to a marriage to the other executed in pursuance of an order of a court made on or after granting in respect of the parties of a decree of divorce, nullity of marriage or judicial separation, or in pursuance of an agreement of the parties made in contemplation of or otherwise in connection with the dissolution or annulment of the marriage or their judicial separation.[1]
[1] Finance Act 1985, s.83(1) .
